This time last week I was at Baillie Gifford’s Investment Trust Conference in Edinburgh – a two-day event, held every three years, that sees Baillie Gifford playing host to around 250 professionals from the world of investment companies. The event provides a useful forum to discuss the latest developments in the sector. However, we also got to hear about progress at Baillie Gifford, along with presentations from all of its investment trusts by their portfolio managers, complete with a Q&A for each. There was a lot of interesting discussion and ideas to come out of the conference, as well as some helpful updates on Baillie Gifford’s trusts. So, for the benefit of anyone not able to attend, I thought I’d pull together some key thoughts from across the two days. I apologise for the length of this week’s QD view, but there is much to tell.

The investment trust sector is very much alive

Despite what some headlines might suggest, James Budden – director of marketing and distribution – opened the conference by making the case that reports of the investment trust sector’s demise are greatly exaggerated. He pointed to the resounding defeat of Saba Capital’s activist attempts earlier this year as proof that shareholders still back boards to act in their best interests. While the campaigns were costly and time-consuming, they revealed a sector that’s far from complacent – today’s boards are more active than ever, overseeing record buybacks, M&A activity, and strategic wind-ups.

Budden admits the sector faces challenges: discounts remain wide, and active managers have struggled in a market dominated by a handful of mega-cap tech stocks. Rising rates haven’t helped either, especially for growth-focused firms like Baillie Gifford. But the message is clear – investment trusts need to lean into their unique strengths, like gearing and the ability to hold illiquid assets, to stand apart from open-ended peers. The structure has proven adaptable for over a century, and with engaged boards and long-term thinking, it still has plenty to offer future generations of investors.

A moment of reflection

If there was one clear takeaway from Baillie Gifford’s recent investment trust conference, it’s this: the house remains unwavering in its belief in long-term, high-conviction growth investing. After a punishing three years for growth strategies – marked by rising interest rates, valuation compression, and shifting sentiment – for many delegates that I spoke to, the event had arrived at exactly the right time.

Baillie Gifford is not like other managers. While most asset houses offer a spread of approaches – value, growth, income, fixed income, alternatives – Baillie Gifford is singular in its purpose. It is unashamedly and consistently focused on growth. This isn’t about riding market cycles or style rotation; it’s about building portfolios of companies with the potential to transform their industries – and holding them, often for a decade or more. This means that, when things go well, its strategies perform strongly in unison and, when things go wrong, it all tends to happen at the same time.

Baillie Gifford’s approach has come under pressure in the current environment, and the managers didn’t shy away from acknowledging the challenges. There was a notable amount of hubris in the room, but also introspection. The various management teams have taken a hard look at their processes over the past few years to try and learn lessons and make improvements. The result? A reinforced belief in the power of patience, the value of backing exceptional entrepreneurs early, and the importance of staying the course when others flinch.

Unlike more transactional, benchmark-aware peers, Baillie Gifford focuses on qualitative research, vision-led business models, and exponential potential. It favours visionary founders over spreadsheet forecasts, and long-term outcomes over short-term beats. That makes it different – and in volatile times, potentially vulnerable. But the firm is not backing down from its convictions. If anything, it’s doubling down.

Importantly, Baillie Gifford works hard to communicate this to the wider market, including retail investors – an audience often overlooked by institutional peers. That willingness to explain, to educate, and to defend their investment philosophy is part of what makes them stand out.

So, yes – it’s been a tough run for growth, and the road ahead may not be smooth. But if the tone of the conference is anything to go by, Baillie Gifford isn’t just waiting for the world to come around to its view. It’s busy preparing for it.

Tom Slater – Blue sky and base rates

Tom Slater, manager of Scottish Mortgage, says the key to long-term success lies in backing transformational companies – and holding them. The trust’s philosophy is simple but demanding – out of thousands of listed companies, only a handful will change the world. Baillie Gifford’s job is to find them early and stay the course.

It’s a message that feels increasingly out of sync with today’s fast moving and volatile markets. Everyone was a growth investor in 2020, but the last three years have been much tougher. Yet history shows that volatility is nothing new. From the dotcom bust to global pandemics and world wars, long-term investors have always had to navigate noise. For Slater, the answer isn’t to duck and dive, but to zoom out. Over five-year periods, just 5% of companies generate fivefold returns, and around 20% drive half of all market gains. Scottish Mortgage’s portfolio is constructed to try and capture these benefits.

Rather than fretting over short-term price swings, the focus is on fundamentals – cash flows, earnings potential, and upside from innovation. It’s about time in the market, not timing the market. That’s why SMT holds a concentrated portfolio of global businesses with the potential to deliver truly outsized returns. In a world hooked on headlines, Slater’s view is refreshingly patient: think more about what can go right than what might go wrong.

Douglas Brodie – Backing tomorrow’s disruptors today

The presentation by Douglas Brodie, manager of Edinburgh Worldwide (EWI), bore some parallels with Tom Slater’s, specifically, the importance of “asymmetry in returns”. As Brodie sees it, a few standout successes can more than make up for failures and Brodie wants to find these standout companies on their “path to greatness”. This mindset underpins the trust’s focus on high-growth sectors where transformative change is underway. EWI’s holdings are growing sales and R&D spending at rates far beyond the benchmark, even if the market hasn’t rewarded that yet. This sort of innovation doesn’t always show up in quarterly results, but it’s the raw material for long-term outperformance.

Consequently, the trust is focused on companies aiming to reshape industries – whether through quantum computing (PsiQuantum), genetic medicine (Alnylam), or space infrastructure (SpaceX). Around 27% of the portfolio is in private companies, reflecting EWI’s willingness to invest ahead of the crowd. It comes as little surprise that returns have been mixed in recent years, but Brodie is clearly excited for the longer-term.

His portfolio is focused on companies, that you’ve probably never heard of, that are solving complex problems – whether in healthcare, digital infrastructure or hardware-software convergence. It’s high-conviction portfolio and not everything will work but, for those with patience, EWI offers exposure to the outliers that could drive tomorrow’s market returns, just as it has done in the past.

James Dow – Durable growth in a volatile world

James Dow, the manager of Scottish American (SAIN), was quick to acknowledge that it is a challenging time to be an investor. White House policy will be decided on a whim for the next three years, there are three armed conflicts being waged, with the potential for more, and inflation is on the rise again and could accelerate. However, in a market full of noise and nerves, Dow makes the case that SAIN will continue to quietly deliver dependable income and long-term growth – it has increased its dividend every year since 1938, outpacing inflation over both the long and short term and has achieved this through a huge range of crises.

SAIN’s strategy remains refreshingly clear – back high-quality companies that can compound earnings at 10% a year while paying resilient dividends. To achieve this, Dow’s team focuses on “relentless compounders” – businesses like Microsoft, Novo Nordisk, and McDonald’s – with strong balance sheets, healthy cash flows, and a proven commitment to shareholder returns. The trust’s average holding period is around eight years, reflecting a patient approach rooted in fundamentals, not forecasts.

Crucially, SAIN isn’t chasing yield for yield’s sake. The current portfolio yield sits around 2.6%, but that masks an emphasis on businesses that grow their pay-outs over time. It’s a slow burn, but one that’s compounded steadily over decades. Alongside equities, the trust also holds direct property and infrastructure assets, adding a bit of ballast when markets wobble. You will not get fireworks with SAIN but, for income investors seeking stability with a growth tilt, that might be just what’s needed.

Roddy Snell – Asia matters

Roderick Snell, manager of Pacific Horizon (PHI), made a strong case for looking east when much of the market remains preoccupied with the West. After a decade of underperformance versus the US, Asia ex-Japan is now offering growth, value, and resilience. PHI wraps all of this and, currently, gives it to you at a discount.

The numbers are striking. Asia accounts for 60% of the world’s population and over half of its GDP growth, yet it makes up just 8% of MSCI’s global index. Valuations are near multi-decade lows versus developed markets and capital flows are stabilising after years of outflows. In short, the region has been overlooked and is undervalued.

Snell argues the case for a triple-growth story: structural economic expansion, rising middle-class consumption (with India and China adding over 60m new consumers last year alone), and a healthy crop of under-researched companies. PHI leans into smaller-cap, high-growth businesses often missed by broader benchmarks, and it shows – portfolio metrics for earnings and sales growth comfortably outstrip the index.

While geopolitical risk and dollar strength remain headwinds, Snell argues that the long-term opportunity is hard to ignore. For those willing to look beyond the last decade’s winners, PHI offers targeted exposure to a region with deep pockets of innovation and a strong case for catch-up.

Iain McCombie and Milena Mileva – Digging for growth in the UK’s forgotten soil

There is little doubt that the UK market still out of favour among global investors, but, while acknowledging the clear challenges, Iain McCombie and Milena Mileva, the managers of Baillie Gifford UK Growth Trust (BGUK), put forward a strong contrarian case that there’s life – and growth – beneath the surface. They say that Britain’s best companies aren’t just surviving – they’re quietly compounding, reinvesting, and positioning for long-term outperformance.

The numbers support their conviction. UK equities are trading at a ~30% discount to global peers, a gap that’s persisted for years. But BGUK’s managers see this as an opportunity, not a warning sign. Their approach is highly selective and many of their holdings don’t appear in typical UK growth mandates, but the result is a concentrated portfolio that is not just made up of FTSE stalwarts – think Games Workshop, Volution Group, and Softcat, for example.

The managers focus on companies with strong fundamentals, long-term reinvestment strategies, and a culture of patience. They’re particularly interested in businesses that are already benefiting from past investment or are laying the groundwork for future dominance. The top holdings list reads more like a “UK under-the-radar innovation index” than a traditional equity income fund.

In a market where headlines often overshadow fundamentals, BGUK’s message is simple: don’t write off the UK. BGUK’s managers argue that, with careful stock selection, a long-term horizon, and a focus on structural winners, this trust is quietly crafting its own chapter in the UK’s growth story – one that global investors may soon wish they hadn’t ignored.

Matthew Brett – Japan, a market finally awakening

Matthew Brett, manager of the Baillie Gifford Japan Trust (BGFD), argues that, after three decades of sluggish returns and investor apathy, Japan may finally be stirring. He believes that the ingredients for a long-awaited revival are falling into place: rising wage growth, renewed corporate pricing power, and an improving capital efficiency story.

The trust’s message is simple but timely. Japan’s companies are getting fitter, margins are improving, and valuations remain strikingly low compared to global peers. On metrics like EV/sales and forward P/E, Japanese equities still trade at a discount, but that discount may be harder to justify if fundamentals keep improving.

Baillie Gifford sees this as an opportunity to own not just cyclical reflation plays, but also world-class growth franchises – content creators, master crafters and global leaders that are hiding in plain sight. The portfolio is distinct, growth-oriented, and forward-looking, with a tilt toward businesses embracing structural trends like digitalisation and healthcare innovation.

After lagging the TOPIX in recent years, the trust is backing a “twin kicker” thesis: corporate reform meets economic reflation. If both play out, the trust could not only close its discount but begin to outperform more consistently. In a world increasingly volatile world, Baillie Gifford Japan Trust makes the case that the real opportunity might lie in a market that many investors gave up on years ago.

Helen Xiong – Investing through the fog of uncertainty

It is worth saying that Helen Xiong’s presentation was a bit different to the rest. It lent into macroeconomic theory – something my inner economist really enjoyed – and illustrates the sort of deep thinking that goes on at Baillie Gifford.

Xiong and the team that manage Monks aren’t pretending to predict the future – but they’re more than ready to invest in it. Framed around three key steps – build resilience, retain perspective, and pounce on opportunity – the trust’s strategy is tailor-made for navigating turbulent markets with cool heads and conviction.

Rather than chasing fads or hunkering down in defensives, Monks leans into diversification by growth type: durable stalwarts, cyclical growers, and rapid disruptors. That balance has helped the trust outperform its benchmark in over half of all quarters across each category. In other words, it’s not about timing the market, but tilting toward the companies best equipped to thrive over the long haul.

Despite a tough run in recent years – 2022 and 2023 were bruising – Monks has held its course. The team sees opportunity in areas where others see noise – especially in technologies like AI, where they believe traditional models of mean reversion no longer apply.

Quoting Keynes – twice, in fact – the presentation reminds us that good investing often looks unconventional. For Monks, that means maintaining discipline while embracing asymmetry. In uncertain times, they’re not trying to be certain, they’re trying to be ready – a mindset that might just give them the edge.

Linda Lin, Sophie Earnshaw, and Qian Zhang – From ‘made in China’ to ‘invented in China’

In a candid panel session with managers of Baillie Gifford’s China Growth Trust (BGCG), Linda Lin, Sophie Earnshaw, and Qian Zhang, the team made a strong case for backing China now not despite the headwinds – but because of them.

China’s capital markets have suffered under the weight of trade tensions, regulatory crackdowns, and investor unease, but BGCG’s managers argue that much of the doom and gloom overshadows the fact China’s innovation engine is stronger than ever. The numbers help frame the scale. China’s household savings have increased dramatically during the last few years and now exceed $19 trillion – more than twice the size of the UK’s entire GDP. Against this backdrop, Beijing’s latest stimulus package is, in the team’s words, “unprecedented” – both in size and in the fact that it has come straight from the top. That political resolve matters, especially when confidence needs rebuilding.

Meanwhile, the country’s industrial and consumer base is playing its part. China has both the manufacturing muscle and the technical talent to support deep innovation. It’s not just about scale anymore – it is also about quality. Companies are no longer content with assembling tech for the West; they want to lead in its development. The managers point to Deepseek AI as a particularly exciting example. They believe it has the potential to accelerate innovation across sectors, noting that Chinese corporates are rushing to integrate it into their business models.

Chinese firms are becoming more sophisticated, not just in R&D but in their global supply strategies too. Faced with tariffs, many are setting up overseas factories to maintain access to Western markets while reducing the impact of protectionist policies. Baillie Gifford believes that investors are underestimating both the resilience and creativity of Chinese companies. Yes, there are risks, but that’s often where the best mispricings occur and, for those willing to look beyond the headlines, they believe the real growth story in China is just getting started.

Brian Lum – Japanese small caps, overlooked and full of potential

Brian Lum, deputy manager of Baillie Gifford Shin Nippon, made the case that the best opportunities in Japan aren’t found in the familiar names on the TOPIX, but in the unloved, under-researched corners of the small-cap market. That’s where innovation lives, he says – and where valuations have rarely looked more appealing.

The trust’s approach is anything but index-hugging. With a 97% active share and a strong bias toward founder-led, entrepreneurial businesses, Shin Nippon is built to be different. Its companies are often ignored by the mainstream and, contrary to the usual stereotypes, are quirky, disruptive, and long-term in their ambitions. Whether it’s an AI-powered real estate platform, a cut-price retail chain shaking up Japan’s pharmacy space, or Japanese precision tools sold into China, Lum says that the portfolio is packed with businesses trying to reshape their industries from the bottom up.

Lum acknowledges that Japanese small caps have been out of favour and performance has lagged in recent years. However, he believes this as a mispricing rather than a misstep and says that fundamentals are improving (for example, the trust’s holdings show stronger sales and earnings growth than the MSCI Japan Small Cap Index, yet trade on depressed valuations). Lum believes this is an “extreme opportunity” and a contrarian bet on innovation in a market many have written off.

Kirsty Gibson – Navigating change, cultural architects, and master builders

Kirsty Gibson, the manager of Baillie Gifford US Growth Trust (USA), gave us a presentation on how, in a world distracted by near-term noise, long-term growth managers can find and stick with those companies that are shaping the next generation of growth. Gibson and her team are focused on what she describes as the cultural architects and master builders of growth. This is not just about spotting companies with breakout potential, rather it is about backing those laying the foundations for entire industries.

This isn’t for the impatient – many of USA’s best-performing holdings have endured drawdowns of 30% or more on their way to becoming multi-baggers. As Gibson notes, “transformational growth is often mispriced in the short term” but, with a long horizon and high conviction, a manager can look through the volatility and focus on the growth outliers.

What sets USA apart is its manager’s emphasis on foundational culture – companies like CoStar, Databricks, and Duolingo that don’t just pivot with change, but help define it. Many are building ecosystems rather than single-product businesses, often across public and private markets. The team is comfortable investing in both, provided the mission – and the growth runway – are big enough.

Despite a rollercoaster few years, recent performance is rebounding – USA’s NAV rose over 10% in the year to March 2025, with the share price up 9.2%. More importantly, the trust continues to hunt in areas where traditional metrics fall short – where adaptability, resilience, and long-term thinking matter more than quarterly numbers. For Gibson, the US remains the world’s most fertile ground for transformational businesses, and, at a time of significant transition, she argues that it is key to remained focused on backing visionary companies early and then holding on for the ride.

Stephen Paice – Europe, if not now, then when?

Baillie Gifford has been managing Baillie Gifford’s European Growth Trust (BGEU) since 2019 and, as its manager Stephen Paice acknowledged, it’s been a bumpy ride with two strong years of performance and four that have disappointed. The headwinds are well documented: a sluggish recovery, geopolitical uncertainty, and years of underinvestment. However, Paice believes that, for those willing to look past the headlines, the mood in Europe is finally starting to change for the better. He believes that Europe is not a perennial value trap but an overlooked growth story waiting to be rediscovered.

Previously, underinvestment in the continent has been a headwind. However, Europe remains a continent of savers, and politicians – spurred on by war at the EU’s borders – are now prioritising spending on infrastructure, defence, and the promotion of national champions. Germany, the powerhouse of Europe, has elected a much more business-friendly chancellor, which Paice sees as a step change. On top of this, valuations are also appealing.

BGEU holds companies like Topicus, Adyen, and EQT – businesses with high-quality franchises, structural growth tailwinds, and, importantly, a lower bar of expectation. That’s the key, says Paice: it’s not enough for a company to be good or even growing fast – it needs to ‘surprise’ the market. Outperformance, in his view, comes from buying underappreciated growth, not chasing the latest shiny thing.

He points to Spotify as a textbook example. When BGEU bought in, the stock was unloved. But it had a huge user base, a focused management team, and the kind of margin potential that could move the needle if properly executed. It wasn’t obvious, but its return potential was strongly asymmetric.

For now, the trust is trading on a discount, and recent performance remains underwhelming. However, with the narrative around Europe finally turning, Paice makes the case that: if not now, then when?

Robert Natzler – Picking winners in a world that’s staying private

The message from Robert Natzler, manager of Baillie Gifford’s Schiehallion Fund (MNTN), is that public markets are no longer the only destination for scaled, profitable companies. Thanks to the internet, companies no longer need the publicity – or the quarterly scrutiny – of a stock market listing to access capital. As a result, some of the world’s most exciting, high-growth businesses are choosing to stay private for longer.

Herein lies a problem of perception. While private markets are by no means homogenous, many investors still perceive most private equity as being earlier stage venture capital investments. This is very wide of the mark for a fund like MNTN that is focused on mature, often revenue-generating businesses that are long past their early stages. Around 69% of its portfolio is in positions older than four years, with only 13% less than two years old. That maturity profile gives the trust much better downside protection than most VC funds, while still capturing the growth that public markets struggle to offer.

Another key message is that this additional growth is meaningful. Natzler says the average growth rate across the portfolio is 84% higher than what’s available in listed markets. At the time of investment, companies typically have around £200m in revenue and are already running at an EBITDA margin of 14%. As such, these are not speculative moon-shots; they are real businesses building dominant positions in their markets.

Natzler says that another benefit of making private investments is that gives the team the time and access needed to properly understand each company – something he thinks can be difficult in more frenetic public or early-stage investing. Another much talked about issue for private companies is that the IPO window is closed for now, restricting the options for exits in private companies. Natzler acknowledges this issue but is confident it will reopen for the sort of ‘exceptional companies’ that MNTN seeks to hold.

For Baillie Gifford, MNTN is still all about addressing one of the biggest structural changes in growth equity today: the fact that some of world’s most promising companies are choosing privacy. Natzler believes that, if you want access to the next generation of global winners, you’ll need to look beyond listed markets to meet some of the best of them.